State should refinance debt to aid recovery

Published: Sunday, November 4, 2012 at 4:30 a.m.

Last Modified: Friday, November 2, 2012 at 5:24 p.m.

The General Assembly must find a way to pay off the state’s $2.5 billion unemployment insurance debt to the federal government that is fair for employers and unemployed residents looking for work.

Employers see this debt as a ticking time bomb and a major threat to the economy, staff writer Mark Schulman reported in his thorough examination of the problem last Sunday. Legislative leaders have pledged to take action early next year.

When the Great Recession hit, North Carolina began borrowing from the federal government to pay jobless benefits. Even though this debt has been going on for years, few people outside the business community were aware of the magnitude of the problem.

Unemployment tax rates for employers are based on history of layoffs at businesses. Those that have laid off more employees in the past pay more in taxes than those who have cut fewer jobs.

Business owners who have laid off workers must pay an additional $21 per employee in unemployment taxes this year. The unemployment tax rate for affected employers is scheduled to double annually until the state’s debt is eliminated. That means if North Carolina fails to come up with another revenue source, some employers could pay up to $420 per year per employee by 2028, the N.C. Chamber of Commerce warns.

The state must act. Raising unemployment taxes every year for the next 15 years could do serious damage to the economy and lead to more unemployed people joining the 450,000 North Carolinians now looking for work.

“It is a true disincentive for employers to hire at a time when we are required to do everything we can to get people back to work,” said Chuck Edwards, chairman-elect of the Henderson County Chamber of Commerce.

Lawmakers are considering a plan sponsored by N.C. Sen. Bob Rucho, R-Mecklenburg, and Rep. Julia Howard, R-Mocksville. That plan has some promising aspects, such as starting a new job retraining program through the N.C. Division of Employment Security and community colleges, and increasing the number of employers who pay into the system to include state and local government employees.

But another part of the proposal — to align unemployment benefits with surrounding states — could do more harm than good.

North Carolina now pays a maximum weekly benefit of $506 for up to 26 weeks. Neighboring Tennessee and Virginia also pay unemployment benefits for up to 26 weeks, but the maximum amount is considerably less — $275 in Tennessee and $378 in Virginia. Georgia and South Carolina cap unemployment benefits at 20 weeks and $330 and $326, respectively.

The Chamber has recommended about two dozen proposals to deal with the problem, including reducing the maximum weekly benefit from $506 to $350 and cutting the amount of time people can draw unemployment from 26 to 20 weeks.

Although North Carolina’s maximum unemployment payment is higher than surrounding states, its average is $290 per week. That ranks the state 25th in the nation, said Bill Rowe, general counsel and director of advocacy for the N.C. Justice Center, which advocates for programs to fight poverty.

“The trouble with reducing duration is that we are still recovering from a tremendous amount of layoffs,” Rowe said.

This stubbornly slow recovery has left many workers jobless or underemployed even after exhausting their unemployment benefits. The state should avoid cutting the duration of unemployment benefits even if it trims the maximum allowable payment.

The N.C. Justice Center says the state should expand the pool of employers who pay unemployment taxes to include 19,000 who do not currently pay because they have not dismissed employees. But that would penalize the very employers who have worked hardest to avoid job cuts.

The Justice Center and the state Chamber agree on one possible solution: issuing bonds to refinance the state’s $2.5 billion debt. The Chamber says the state could have avoided a 0.3 percent credit penalty on employers in 2011, now set to double in following years, if the bond recommendation had been passed last year.

With interest rates at historic lows, it makes sense for the state to refinance its massive unemployment debt. Legislators should make sure job retraining funds are spent wisely and efficiently, while continuing benefits for up to 26 weeks for employees who have lost jobs through no fault of their own.

<p>The General Assembly must find a way to pay off the state’s $2.5 billion unemployment insurance debt to the federal government that is fair for employers and unemployed residents looking for work.</p><p>Employers see this debt as a ticking time bomb and a major threat to the economy, staff writer Mark Schulman reported in his thorough examination of the problem last Sunday. Legislative leaders have pledged to take action early next year.</p><p>When the Great Recession hit, North Carolina began borrowing from the federal government to pay jobless benefits. Even though this debt has been going on for years, few people outside the business community were aware of the magnitude of the problem.</p><p>Unemployment tax rates for employers are based on history of layoffs at businesses. Those that have laid off more employees in the past pay more in taxes than those who have cut fewer jobs.</p><p>Business owners who have laid off workers must pay an additional $21 per employee in unemployment taxes this year. The unemployment tax rate for affected employers is scheduled to double annually until the state’s debt is eliminated. That means if North Carolina fails to come up with another revenue source, some employers could pay up to $420 per year per employee by 2028, the N.C. Chamber of Commerce warns.</p><p>The state must act. Raising unemployment taxes every year for the next 15 years could do serious damage to the economy and lead to more unemployed people joining the 450,000 North Carolinians now looking for work.</p><p>It is a true disincentive for employers to hire at a time when we are required to do everything we can to get people back to work, said Chuck Edwards, chairman-elect of the Henderson County Chamber of Commerce.</p><p>Lawmakers are considering a plan sponsored by N.C. Sen. Bob Rucho, R-Mecklenburg, and Rep. Julia Howard, R-Mocksville. That plan has some promising aspects, such as starting a new job retraining program through the N.C. Division of Employment Security and community colleges, and increasing the number of employers who pay into the system to include state and local government employees.</p><p>But another part of the proposal  to align unemployment benefits with surrounding states  could do more harm than good.</p><p>North Carolina now pays a maximum weekly benefit of $506 for up to 26 weeks. Neighboring Tennessee and Virginia also pay unemployment benefits for up to 26 weeks, but the maximum amount is considerably less  $275 in Tennessee and $378 in Virginia. Georgia and South Carolina cap unemployment benefits at 20 weeks and $330 and $326, respectively.</p><p>The Chamber has recommended about two dozen proposals to deal with the problem, including reducing the maximum weekly benefit from $506 to $350 and cutting the amount of time people can draw unemployment from 26 to 20 weeks.</p><p>Although North Carolina’s maximum unemployment payment is higher than surrounding states, its average is $290 per week. That ranks the state 25th in the nation, said Bill Rowe, general counsel and director of advocacy for the N.C. Justice Center, which advocates for programs to fight poverty.</p><p>The trouble with reducing duration is that we are still recovering from a tremendous amount of layoffs, Rowe said.</p><p>This stubbornly slow recovery has left many workers jobless or underemployed even after exhausting their unemployment benefits. The state should avoid cutting the duration of unemployment benefits even if it trims the maximum allowable payment.</p><p>The N.C. Justice Center says the state should expand the pool of employers who pay unemployment taxes to include 19,000 who do not currently pay because they have not dismissed employees. But that would penalize the very employers who have worked hardest to avoid job cuts.</p><p>The Justice Center and the state Chamber agree on one possible solution: issuing bonds to refinance the state’s $2.5 billion debt. The Chamber says the state could have avoided a 0.3 percent credit penalty on employers in 2011, now set to double in following years, if the bond recommendation had been passed last year.</p><p>With interest rates at historic lows, it makes sense for the state to refinance its massive unemployment debt. Legislators should make sure job retraining funds are spent wisely and efficiently, while continuing benefits for up to 26 weeks for employees who have lost jobs through no fault of their own.</p>